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Backgrounder on Transatlantic Trade and Investment Partnership

TRANSATLANTIC TRADE AND INVESTMENT PARTNERSHIP

US-EU FTA Talks Offer Challenges and Opportunities

The United States is now heavily engaged in negotiating a major free trade agreement (FTA) with the European Union (EU) known as the Transatlantic Trade and Investment Partnership (TTIP).

Background:

TTIP is unique among all previous FTAs negotiated by the United States. While the basic premise of removing trade barriers is the same, U.S. manufacturers and exporters enjoy the potential of increased access to an overseas consumer market that mirrors our own in both size and production cost structure – a first for a U.S. FTA. In light of this shift in dynamic, U.S. negotiators are taking an aggressive approach, and critical challenges from a USIFI/NFI perspective include:

Rule of Origin – The EU utilizes a “two-step” origin rule in their trade agreements that is weaker than the U.S. yarn-forward system. Certain products may only require a fabric-forward rule or even finishing-forward under the European system. USIFI and NFI strongly support a yarn-forward rule and urge its adoption under TTIP. Yarn forward has a proven track record of driving production, trade, and investment to signatory countries instead of outside parties like China.

Market Access – As with all FTAs, the United States will eventually eliminate all duties on EU products that meet the TTIP origin requirements. The EU has proposed immediate duty-free treatment on all products, and the United States has agreed to immediate duty elimination on at least 97% of the existing U.S. tariff code. The remaining 3% would be phased-out over various timelines such as three or seven years. It is critical that the U.S. government include highly sensitive textile products in the 3% grouping.

Defense Procurement – The EU continues to request access to all U.S. government procurement mechanisms, including the Berry Amendment. The EU argues that their defense procurement system is open to non-EU parties; however, this position is largely disingenuous. While the EU Commission does not preclude access to defense contracting for non-European firms, it grants discretion to individual member states to do so. As a result, Italy, Germany, France, and other EU member countries all have individualized procurement rules. A number of EU member states block outside parties from participating in defense contracting while others do not.Moreover, with the United States outspending the EU by approximately 3:1 for military purposes, the EU would substantially and instantaneously gain from a weakening of procurement rules such as the Berry Amendment.

The Berry Amendment requires the U.S. Defense Department to buy textiles and certain other products, judged essential to military readiness, made with 100 percent U.S. content and labor. It has been congressionally mandated since 1941. Any opening of the Berry Amendment is a complete non-starter for the domestic textile sector.

Regulatory and Labeling Issues – Both parties are attempting to determine how testing, regulatory and labeling requirements can be harmonized and simplified as part of TTIP. USIFI and NFI strongly support the effort to reconcile and improve requirements in this area.

Status:

The United States and EU have been meeting on a quarterly basis since the talks were launched in February 2013. To date there have been 13 official negotiating rounds, with the next round slated for this July.

The Obama administration is communicating that they have every intention of completing the TTIP negotiations prior to the expiration of the president’s term. Regardless of the exact timetable, USIFI and NFI will remain heavily focused on ensuring that the final TTIP agreement includes our key objectives.

Action Request:

Make sure the final TTIP agreement includes (1) a sound rule of origin based on the yarn-forward construct, (2) provides extended tariff phase-out periods for sensitive products, (3) preserves the Berry Amendment in full, and (4) provides regulatory harmonization and relief.